Kiwis adopting great savings habits but overestimating returns

New research shows four out of five New Zealanders put money aside in addition to KiwiSaver, but most are significantly overestimating the interest they are receiving.

The research by investment platform Sharesies found 71% of Kiwis have a savings account, but they probably aren’t getting the returns they expect.

Around 70% of people believe the average interest rate of a savings account is between 1% and 3%, and 21% believe it’s over 3%.

Whereas interest.co.nz (as at 29 October 2019) shows the majority of on-call savings accounts deliver less than 1% interest per annum, and if the OCR is cut again on November 13, interest rates may drop further.

Sharesies CEO and co-founder Brooke Roberts says it’s great to see so many Kiwis regularly putting money aside above and beyond their KiwiSaver, but the research also shows we have an opportunity to reset what we do with this money.

“When we asked people what they’d do with an extra $50 today, 7% said they’d invest it, and 42% said they’d save it. Right now, with record low-interest rates, that money isn’t going to earn much interest in a bank savings account. You’ve got a better opportunity to invest the amount – no matter how big or small it is."

In the survey, just shy of a third of people put aside around 5% for savings, over and above KiwiSaver, which, if taken from the median weekly salary of $1,016, equates to around $50 per week.

Setting aside $50 a week for five years adds up to $13,0050 of principal.

But if that same $50 per week had been invested in shares in the NZ Top 50 during the past five years, the combined investment and return would be $20,107.

“We’ve got some great savings habits, now it’s just about fine-tuning what we do with this money,” says Roberts.

The Sharesies survey also gained insights into the different savings and investment practices of different age groups in New Zealand.

As people get older, they are more likely to consider putting any savings into term deposits, rising from 28% of those under 30, to 57% of 50-64-year-olds, and 65% of those 65-plus.

On the flip side, those aged under 30 were more likely to consider using any savings to buy shares, at 34%, compared to 28% of 50-64-year-olds, and 22% of those 65-plus.

"It's very promising to see younger Kiwis showing greater confidence in the share market and that showed in our survey too. Overall, we found 42% of Kiwis believe investing in shares is a good way to grow their money, but for those aged under 30 it was 56%, compared to 32% of those over 65."

"The world of investing is changing rapidly, and Kiwis can now depend on the stock market to grow their wealth, no matter how much they have to invest.

“People are waking up to the potential gains to be made from investing in shares over the long term. Just putting all their money in the bank to sit idle is limiting given the current financial environment," Roberts concludes.